retirement

Set aside cash in distribution of estate

Don TaylorQuestionDear Dr. Don,
I've done a great job of dissolving my mom's estate with my very cooperative siblings. At the advice of the estate attorney, I have shared a thorough accounting with my family and put $10,000 aside until we reach the one-year anniversary, should there be any challenges. Is it common, as he indicates, that most people don't bother spending the money with final distribution of the estate and leave it open forever? Is it a good investment? The anniversary is approaching, and I don't want to spend money on something unnecessary.

The estate is $350,000 and has successfully gone through an initial probate of the will. The first-year estate taxes are done and I will do a 2011 filing for as long as the IRS says. This past year's tax refund was $900, and I expect that to drop or stop. An initial detailed accounting was approved by my siblings prior to distribution of the bulk of the estate this spring.

Once we pass the one-year statute of limitations for creditors to file against the estate, and each family member signs off on the final accounting, I'm considering distributing the final $10,000. I understand I can go to court to officially close the estate, but I also have heard that many people in our circumstances do what I am planning and leave the estate open without problems. I wonder if that is so.
-- Janet Juncture

AnswerDear Janet,
In most states, the probate court will encourage you to close the estate after a certain period of time unless you can show cause for keeping it open.

The estate's attorney will know more about the particulars of the estate and the applicable state law, but the question remains. In completing the distribution of the estate, why not do it after you are certain that all tax and other liabilities have been met and have obtained written receipts and releases from the beneficiaries, and you make an accounting to the court to have the estate legally closed? It seems to be the proper way of handling this small estate.

Liquidity is a valuable asset in an estate. Having $10,000 on reserve for miscellaneous estate expenses beats trying to claw back funds from the beneficiaries of the estate, but if you've done things right, and it looks like you have, you should reach a point where there shouldn't be any continuing expenses or claims against the estate. At that point it's time to fold up the tent and close out the estate.

Thanks to Constance J. Fontaine, associate professor of taxation and the Larry R. Pike chair in insurance and investments at The American College in Bryn Mawr, Pa., for her assistance in answering this reader's question.

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